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Mattioli Woods PLC (MTW)

  Print      Mail a friend       Annual reports

Tuesday 30 August, 2011

Mattioli Woods PLC

Final Results

RNS Number : 1750N
Mattioli Woods PLC
30 August 2011
 



 

 

 


30 August 2011

 

 

Mattioli Woods plc

 

("Mattioli Woods" or "the Group")

 

Final Results

 

Mattioli Woods plc (AIM: MTW.L), the specialist pensions consultancy, today reports its Final Results for the year ended 31 May 2011. 

 

Highlights

 

·     Revenue up 12.3% to £15.36m (2010: £13.68m)

·     Adjusted EPS1 up 14.1% to 21.22p (2010: 18.60p)

·     Adjusted profit before tax2 up 9.8% to £4.95m (2010: £4.51m)

·     Proposed total dividend up 13.8% to 4.95p (2010: 4.35p)

·     Assets under administration and advice up 21.7% to £2.30bn (2010: £1.89bn)

·     Strong balance sheet with net cash at period end of £4.61m (2010: £5.79m)

·     Acquisition of City Trustees in August 2010

·     Helen Keays appointed as non-executive director

·     Acquisition of Kudos, an employee benefits and wealth management business, in August 2011

 

Commenting on the Final Results, Bob Woods, Executive Chairman, said:

 

"I am delighted to report another strong set of results and our sixth year of growth on AIM.  Recent changes in pension legislation, combined with other market developments such as the demise of defined benefit pensions, all lead to an increasing need for people to plan for their own financial futuresI expect demand for impartial advice and our 'trusted adviser' status to deliver further growth against a backdrop of deep changes in the world's economies. 

 

"This morning we have announced the acquisition of Kudos, an employee benefits and wealth management business based in Aberdeen, with offices in Glasgow and London.  Kudos is an excellent cultural and strategic fit with Mattioli Woods, offering real synergies for both organisations, including the ability to promote additional services to existing and prospective clients of each business. 

 

"Trading in the current period is in line with the Board's expectations and despite the challenges presented by volatile financial markets and economic uncertainty, the outlook is positive as we develop complementary services for our clients, including a Discretionary Fund Management ("DFM") platform we plan to launch later this yearOur reputation as a specialist pensions consultancy provides a strong foundation from which to drive continued revenue growth, albeit with a short term contraction in margin as we invest in the business to take advantage of new opportunities. 

 

"The Board is pleased to recommend the payment of a final dividend of 3.30 pence per share, making a total dividend for the year of 4.95 pence, an increase of 13.8% on last year.  The acquisition of Kudos and development of our DFM services herald a new chapter for our business and I look to the future with confidence." 

 

1Basic EPS up 10.1% to 18.94p (2010: 17.20p). 

2Before acquisition costs expensed under IFRS3 (Revised) and amortisation of intangible assets other than computer software. 

 

For further information please contact:

Mattioli Woods plc


Bob Woods, Executive Chairman

Tel: +44 (0) 116 240 8700

bob.woods@mattioli-woods.com

www.mattioli-woods.com

 

Ian Mattioli, Chief Executive

Tel: +44 (0) 116 240 8700

ian.mattioli@mattioli-woods.com

www.mattioli-woods.com

 

Nathan Imlach, Finance Director

Tel: +44 (0) 116 240 8700

nathan.imlach@mattioli-woods.com 

www.mattioli-woods.com

 

Canaccord Genuity Limited


Gordon Neilly

Tel: +44 (0) 20 7050 6778

gneilly@canaccordgenuity.com

www.canaccordgenuity.com

 

Simon Bridges

Tel: +44 (0) 20 7050 6778

sbridges@canaccordgenuity.com 

www.canaccordgenuity.com

 

Media enquiries:

Financial Dynamics Limited


Georgina Turner

Tel: +44 (0) 20 7269 7136

georgina.turner@fd.com

www.fd.com

 

 

Analyst presentation

 

There will be an analyst presentation to discuss the results at 9.30am today at Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. 

 

Those analysts wishing to attend are asked to contact Jack Hickey at Financial Dynamics on +44 20 7269 7196 or at jack.hickey@fd.com.

 

Chairman's statement

 

I am delighted to report further progress for the Group in the year ended 31 May 2011, with adjusted earnings per share3 up 14.1% and adjusted profit before tax4 up 9.8% compared with the prior year.  This completes a 20 year record of revenue and profit growth, of which we are immensely proud. 

 

Our business delivers technically excellent, bespoke advice to clients, supported by high quality personalised administration.  The pace of political and economic change in the UK and abroad is making these attributes increasingly important, underpinning strong client retention and growth in consultancy and administration revenues.  Fee-based revenues increased by 22.0% to £8.97m (2010: £7.35m) as a result of demand for advice associated with changes in pension legislation and the positive contribution from recent acquisitions. 

 

We acquired City Pensions Limited and City Trustees Limited (together "City Trustees") from Lighthouse Group plc in August 2010, expanding our range of services to include a separately branded administration proposition that services over 1,000 SIPP and SSAS schemes.  Both City Trustees and the CP Pensions business we acquired in April 2010 have bedded-in well and I am very pleased with their successful integration into the Group. 

 

The acquisition of TCF Global Independent Financial Services Limited and its operating subsidiary Kudos Independent Financial Services Limited ("Kudos") announced today is an excellent strategic and cultural fit with Mattioli Woods.  Kudos' employee benefits and wealth management capabilities strengthen our existing client proposition.  In addition to extending our geographic footprint, the acquisition gives us the opportunity to offer our core SSAS and SIPP services to Kudos' clients while enabling us to offer enhanced employee benefits services to Mattioli Woods' clients. 

 

We continue to enjoy strong client retention, although the expected fall-out from recent acquisitions increased the core client attrition rate5 to 5.1% (2010: 4.3%).  Mattioli Woods added 248 new direct SSAS and SIPP schemes in the year (2010: 229) and we remain focused on maintaining the quality of new business, with the average new scheme comprising £0.37m of assetsI am confident we can secure strong organic growth going forward, particularly following the acquisition of Kudos.  We have a healthy enquiry pipeline and have increased new business capacity within the consultancy team, with the aim of increasing the conversion of enquiries to new clients. 

 

The development of our staff remains key and it is pleasing to see seven individuals progress into consultancy during the year, increasing the team to 30 (2010: 23). 

3 Basic EPS up 10.1% to 18.94p (2010: 17.20p). 

4 Before acquisition costs expensed under IFRS3 (Revised) and amortisation of intangible assets other than computer software. 

5 Direct SSAS and SIPP schemes lost as a result of death, annuity purchase, external transfer or cancellation as a percentage of average scheme numbers during the period. 

 

Behind the scenes, it has been a busy year as we prepare for the launch of our discretionary fund management ("DFM") platform, developed in response to client demand from this extension to our existing wealth management proposition. 

 

Assets under administration and advice

 

Historically, we have reported Funds Under Trusteeship ("FUT"), representing the assets administered within our clients' SSAS and SIPP portfolios, which increased by 22.7% to £2.11bn (2010: £1.72bn).  This year, we are introducing a new metric to include all the different assets the business gives advice upon and/or administers. 

 

Total assets under administration and advice increased by 21.7% to £2.30bn at 31 May 2011 (2010: £1.89bn), with £0.29bn of new funds added on the acquisition of City Trustees


31 May 2011

£m

 

31 May 2010

£m

 

SSAS

 

1,221.7

 

1,085.0

SIPP

888.6

634.9




FUT

2,110.3

1,719.9




Employee benefits

149.9

139.0

Personal assets

44.2

27.2




Assets under administration and advice

2,304.4

1,886.1

 

While the majority of these assets comprise pension wealth, personal investment planning is an area of additional focus for us, where I expect strong growth following the acquisition of Kudos, which adds circa £530.0m of new assets under administration and advice. 

 

Market overview

 

Our clients' needs and expectations have shifted markedly from the past.  Communication is driven by the internet and we are seeing tectonic shifts in the global economy, with the credit crisis of 2008 heralding changing fortunes for the developed West and emerging East.  Against this backdrop, our status as trusted adviser, with a commitment to high service standards and increasing investment in technology, positions us well to deliver the wider range of services our clients require. 

 

The SIPP market displays the characteristics of many fast-growing financial services markets: high growth, associated concerns around mis-selling, resulting in stricter compliance requirements being imposed by the regulator.  The Financial Services Authority's ("FSA's") Thematic Review in 2009 focused on concerns about the suitability of the SIPP product and the ability of smaller SIPP providers to police their client portfolios appropriately. 

 

The FSA's recent intervention in the sale of a failing SIPP operator highlights how this sector is under increasing scrutiny.  The FSA has signalled its plans to increase the capital resource requirements of SIPP operators, which I expect to drive further consolidation as small providers struggle to compete under the new regime. 

 

In addition, the Retail Distribution Review ("RDR") may still take effect at the end of 2012.  It is widely predicted the IFA market will shrink as a result, driving the remaining players to focus on quality rather than quantity.  I believe this is all good news for Mattioli Woods, as we position ourselves to take advantage of new opportunities as demand moves closer to our established model. 

 

Trading results

 

We achieved increased total revenues of £15.36m (2010: £13.68m) in the year ended 31 May 2011, with our two most recent acquisitions delivering £0.89m of this increase.  These acquisitions, together with sustained demand for advice from clients following the recent changes in pension legislation, helped increase fee-based revenues to 58.4% (2010: 53.7%). 

 

Investment-related revenues fell to 31.9% of total revenue (2010: 39.1%), with traditional investment commissions falling to £3.05m (2010: £3.61m) as the general economic environment, sovereign debt concerns and fragile stock markets saw our clients remain cautious.  These concerns continue to drive demand for structured products, with associated revenues increasing to £0.91m (2010: £0.84m).  Despite interest rates having remained at historic lows since March 2009, banking income increased to £0.95m (2010: £0.90m) following the negotiation of enhanced terms with our key banking partners. 

 

Last year, I set out our expectation that we would see increased property syndicate investment due to rental yields looking increasingly attractive compared with low interest rates and gilt yields.  Property syndicate revenues increased to £1.49m (2010:£0.99m) or 9.7% of total revenue (2010: 7.2%).  Clients invested £16.3m (2010: £6.73m) into eight (2010: three) new syndicates completedduring the year. 

 

Earnings before interest, taxation, depreciation and amortisation ("EBITDA") increased to £5.09m (2010: £4.72m) with EBITDA margin of 33.1% (2010: 34.5%) falling as a result of the acquisition of City Trustees during the year.  Following the successful integration of City Trustees into the Group, I expect the acquisition to be earnings enhancing in this current financial year.  Adjusted earnings per share increased by 14.1% to 21.22p (2010: 18.60p)

 

Compliance

 

The FSA's involvement in the recent sale of certain SIPP operators highlights once more the regulatory challenges facing the SIPP sector.  Having identified problems with many small SIPP operators' systems, the FSA continues to focus on this sector and earlier this year issued a detailed questionnaire for firms to report on all areas of their business including systems, management controls and capital adequacy requirements. 

 

In July, the Treasury Committee recommended that the FSA should delay implementation of the RDR by 12 months, although the FSA seems reluctant to do so.  However, the broad principles of the proposed RDR framework remain and I am confident our fee-based approach is already aligned with the key recommendations of the RDR.  Many commentators believe the increasing compliance burden and changes in regulation will continue to drive consolidation, both among SIPP operators and in the IFA sector. 

 

Acquisitions

 

The two businesses we acquired in 2010 have been fully integrated and performed in line with our expectations.  City Trustees has moved into new offices at 210 High Holburn, London and its senior management team has been strengthened through the appointment of new staff.  We have also improved operating systems and procedures, eliminating billing inefficiencies.  City Trustees is well positioned to provide top-end IFAs and wealth managers with high quality administration, backed by strong technical support. 

 

The acquisition of Kudos extends both our employee benefit and wealth management propositions, giving us the ability to do more with our existing client base.  The acquisition is expected to be earnings enhancing in the current financial year. 

 

We continue to seek bolt-on acquisitions in the SIPP sector and to review strategic acquisitions that can increase scale, broaden the range of services we offer or extend our distribution channels. 

 

Staff

 

We are a people business.  Our aim is to deliver top quality, personalised advice and administration to help our clients achieve their long term objectives.  Our people remain our most important asset and everything we achieve is due to their hard work and commitment.  Earlier this month, it gave Ian Mattioli and I enormous pleasure to celebrate 20 years of profitable growth with all our staff. 

 

We enjoy a strong team spirit and continue to build upon this by facilitating employee equity participation through the Mattioli Woods plc Share Incentive Plan.  Currently, 48% of eligible staff (2010: 48%) have elected to invest via the plan and I will promote broader participation over the next 12 months. 

 

Board changes

 

Earlier this year, the Nominations Committee decided to appoint a further non-executive director to bring better balance to the Board.  Following a selection process laid down by the Nominations Committee, we were delighted to announce the appointment of Helen Keays on 6 July 2011.  Helen's marketing knowledge and experience as a director of listed and financial services businesses will be a great asset to the Group as we continue to grow and develop our business. 

 

Dividends

 

The Board is pleased to recommend the payment of a final dividend for the year ended 31 May 2011 of 3.30 pence (2010: 2.90 pence) per ordinary share.  If approved, the final dividend will be paid on 18 October 2011 to shareholders on the register at the close of business on 9 September 2011.  This makes total dividends in respect of the year ended 31 May 2011 of 4.95 pence per share (2010: 4.35p), a year-on-year increase of 13.8% (2010: 11.5%).  The Board remains committed to growing the dividend, while maintaining an appropriate level of dividend cover. 

 

Outlook

 

Trading in the current period is in line with the Board's expectationsIn the short term, I expect volatile financial markets and economic uncertainty to present further challenges for investment advisers and managers.  However, we have demonstrated before how our billing model and advisory approach give us the resilience to continue growing the business despite difficult market conditions. 

 

I am particularly enthused about the opportunities now open to the enlarged Group.  The planned launch of our DFM platform will take centre stage in developing our wealth management capabilities and the acquisition of Kudos gives us an exciting new distribution channel for both our core pension and complementary services.  I believe these strategic developments will strengthen our position in a market I expect to place advice-led services at a premium. 

 

Our pension services and our reputation as a SSAS and SIPP consultancy of excellence provide a strong foundation from which to drive continued revenue growth, albeit with a short term contraction in margin as a result of increasing our investment in infrastructure and brand to ensure we can take advantage of these opportunities.  The acquisition of Kudos and development of DFM herald a new chapter for our business and I look to the future with confidence. 

 

 

Bob Woods

Chairman

29 August 2011

 

 

 

Chief Executive's review

 

Introduction

 

It is 20 years since Bob Woods and I founded Mattioli Woods.  I am proud that throughout this period, we have delivered consistent revenue and profit growth.  

 

The last few years have been a period of great economic uncertainty.  During this time, our clients have been reassured by our proactive investment advice.  Our investment strategies have performed well, putting our clients in a strong position to take advantage of tomorrow's opportunities. 

 

The development of our business has been based upon the development of our people.  Their ability to adapt to challenges, whether it be those created by turmoil in financial markets or regulatory change, has been very satisfying.  All of these values are important as we look to continue growing our business, both organically and by acquisition. 

 

Market

 

Our markets are serviced by a wide range of suppliers offering diverse services to individual and corporate clients.  These markets are fragmented and remain highly competitive, although many commentators suggest regulatory changes, particularly the RDR and increased capital adequacy requirements, will drive consolidation. 

 

Business objective and strategy

 

Our focus is at the higher end of the retirement wealth market, where clients require bespoke service and specialist advice.  We aim to deliver profitable growth year-on-year, both organically and by acquisition.  We will underpin this objective through:

 

·     Organic growth achieved by attracting new clients and extending the range of products and services we offer to our existing clients;

·     Continuing to develop our administration platforms, allowing us to service increased business volumes; and

·     Expanding our presence in the wealth management space through strategic acquisitions. 

 

Revenue streams

 

The Group's turnover is derived from three key revenue streams: pension consultancy and administration, investment planning and property syndicates.

 

Pension consultancy and administration

 

Mattioli Woods' core business is pension consultancy, involving the provision and administration of SIPPs and SSASs.  Our client base primarily comprises owner-managers, senior executives and members of the professions.  We also provide employee benefits consultancy and personal financial planning as complementary services to our core business.

 

During the year, we acquired City Trustees from Lighthouse Group plc ("Lighthouse").  City Trustees has an excellent reputation for providing bespoke pensions administration coupled with first-rate client service and it is a great fit with our existing business. 

 

Revenues from our fee-based services have increased by 22.0% to £8.97m (2010: £7.35m) as a result of demand for advice associated with changes in pension legislation and the positive contribution from City Trustees and the CP Pensions business acquired in April 2010. 

 

Investment planning

 

A key feature of our approach to wealth management for retirement is the impartial nature of our investment advice.  We focus on providing solutions tailored to each individual client's needs, including our own bespoke products.  Although the majority of our income streams are not directly dependent upon the performance of financial markets or the value of funds under trusteeship, movements in these can influence the appetite of our clients to make investments. 

 

Investment planning revenues fell 8.24% in 2011 to £4.90m (2010: £5.34m) with traditional investment commissions falling to £3.05m (2010: £3.61m) as the general economic environment, sovereign debt concerns and fragile stock markets saw our clients remain cautious.  These concerns continue to drive demand for structured products.  We promoted ten (2010: 13) new bond issues during the year, with clients subscribing a total of £29.5m (2010: £31.0m).  Associated revenues increased to £0.91m (2010: £0.84m), with a number of new issues in 2010 having short maturities, carrying lower initial commissions. 

 

Despite interest rates having remained at historic lows since March 2009, banking income increased to £0.95m (2010: £0.90m) following the negotiation of enhanced terms with our key banking partners. 

 

Property syndicates

 

Mattioli Woods facilitates commercial property ownership for its clients by way of a syndicated property initiative.  We believe commercial property is ideally suited as a retirement investment, with good quality properties typically providing stable long-term income streams.  As expected, we saw increased property syndicate investment during the year as rental yields looked increasingly attractive in the prevailing interest rate environment

 

Property syndicate revenues increased to £1.49m (2010: £0.99m) or 9.7% of total revenue (2010: 7.2%).  Clients invested £16.3m (2010: £6.73m) into eight (2010: three) new syndicates that completed during the year.  The total number of property syndicates using our administrative services at the year-end increased to 49 (2010: 41). 

 

Demand remains within our client base for commercial property with the benefit of long leases and strong tenant covenants.  Recurring revenues derived from our annual administration services increased 13.6% to £0.75m (2010: £0.66m), in line with higher commercial property valuations and more properties under administration. 

 

To allow us to develop the property syndicate initiative outside of our own client base, following FSA approval, this element of our business will be transferred into a separate subsidiary, Custodian Capital Limited ("CCL"), later this year.  The business currently administers properties worth over £84.0m, owned by 850 investors drawn exclusively from Mattioli Woods' client base. 

 

There are growth opportunities within the existing platform through:

 

·     Increasing participation from existing and new clients yet to invest; and

·     Encouraging clients to diversify from client-owned properties into syndicates. 

 

CCL's objective is to invest in good quality commercial or residential property with conservative levels of gearing, to deliver a long-term income stream and the possibility of capital growth.  Investors can be SIPP, SSAS or private individuals.  This will enable us to open the direct property investment opportunity to other wealth managers, IFAs, private client brokers and professionals, representing a much wider potential client base. 

 

Regulatory environment

 

Financial Services Authority

 

Mattioli Woods is authorised and regulated by the FSA to provide investment advice and to establish, operate and wind-up personal pension schemes, including SIPPs.  The FSA's SIPP regulation regime introduced in 2007 affords additional protection to clients through capital adequacy requirements imposed on the providers of pension schemes.  Throughout the period, we have complied with these requirements. 

 

Assessment of small SIPP providers

 

In early 2011, the FSA requested detailed information from all small SIPP providers to ensure they are adequately structured and controlled and to ensure they review all assets that are accepted into their SIPP arrangements.  The FSA has also closely reviewed the capital resources requirements of those firms to ensure that consumers are adequately protected.  Our balance sheet strength gives us significant headroom above the basic FSA requirements.  However, these demands may force certain firms to consider exiting the market, creating new opportunities for us.  

 

The FSA has also announced it is going to consider the capital resources requirements for pension administrators separately and expects to consult on these issues later this year.  This may lead to a further increase in our capital resource requirements, although I expect any increase to be accommodated within our current financing arrangements.  

 

Review of Retail Distribution

 

Under the Review of Retail Distribution ("RDR"), new rules are intended to come into effect at the end of December 2012, although the Treasury Committee has recommended that the implementation of these rules is delayed for 12 months.  The FSA's proposals mean IFAs will be required to adopt a much stricter remuneration agreement at the outset of a new client relationship, divorced from a specific product sale, together with higher professional standards. 

 

The options for Mattioli Woods' core SSAS and SIPP business remain:

 

·     To be an entirely independent adviser; or

·     To provide only restricted advice; or

·     To be a combination of the two, for example, being a SIPP operator that provides independent advice on the assets held within the SIPP wrapper.

 

We want to be an independent investment adviser and are already well-positioned by having an investment research team.  However, Mattioli Woods has its own SIPP products and hence we may decide to provide only restricted advice in relation to these. 

 

With significant changes being made to existing commission structures, we are considering the most appropriate revenue model to adopt for the provision of investment advice.  Under the RDR rules, product providers can continue to facilitate our existing model, although the introduction of an advisory fee linked to the value of Funds Under Advice, billed monthly or annually in advance, may be more appropriate. 

 

We continue to consult with our clients to gather their views, prior to implementing any change to our existing fee-based business model.  Mattioli Woods provides clients with service and fee agreements at the outset and I believe our well-established, fee-based culture gives us a competitive advantage over much of the IFA sector.  I do not expect that the RDR's proposals will change significantly the way we deal with our clients. 

 

HM Revenue & Customs and The Pensions Regulator

 

A number of the Group's subsidiaries are registered with HM Revenue & Customs ("HMRC") as scheme administrators for pension schemes (including SSASs).  All pension schemes must be registered with The Pensions Regulator.

 

I believe the new pensions legislation incorporated in the Finance (No 3) Bill 2011 will put pensions at the centre of the Government's drive to revive a savings culture in the UK.  The first piece of new legislation introduces a contribution limit of £50,000 per annum, with the ability to carry forward unused allowances from the previous three years.  Reintroducing full top-rate tax relief for all, including high-earners, is a clear indication that the Government wants to see a substantial increase in UK pension investment.  

 

The second piece of legislation abolishes a particularly onerous aspect of the previous tax regime, where there were potential tax charges of up to 82% on a member's pension fund following the death of the member and their partner after the age of 75.  Furthermore, the legislation introduces a new concept, referred to as 'flexible drawdown', which in essence will allow some members to access their pension fund, over and above HMRC's usual maximum income limits, at any time in retirement. 

 

I expect these changes and the shift away from a culture of corporate pension provision to one of greater individual responsibility to support further growth in our sector.  

 

Compliance

 

We consider all legislative changes and the findings of all FSA and HMRC reviews and, where appropriate, we take action to ensure our systems and processes continue to represent best practice. 

 

We maintain dedicated compliance teams, with systems to proactively monitor client investments, consultancy and administration services, investment advice, financial standing of suppliers, pension transfer advice, FSA rule book compliance and Audit & Pension Schemes Services compliance.

 

We continue to invest in maintaining our staff's technical excellence and developing our administration systems.  The majority of our consultancy team joined us as graduate trainees and already hold high-level examinations obtained during their training with us.  A key objective of the RDR is to inspire consumer confidence so that the provision of personal financial advice is seen as a profession on a par with other professions.  The FSA believes a higher minimum qualification requirement is needed for investment advisers.  Their recommendation is that this is set at Qualifications Credit Framework ("QCF") Level 4 or equivalent.  All existing advisers will be required to reach at least this level by the end of 2012. 

 

Current and future developments and performance

 

Group results

 

Revenues were up 12.3% to £15.36m (2010: £13.68m) as a result of our recent acquisitions and sustained demand for advice following changes in pension legislation during the year.  Fee-based revenues increased to 58.4% of total revenue (2010: 53.7%).  Investment planning related revenues fell to 31.9% of total revenue (2010: 39.1%) as clients remained cautious around the general economic outlook.  Property syndicate revenues increased to 9.7% (2010: 7.2%), with increased investment in new syndicates due to rental yields looking increasingly attractive compared with low interest rates and gilt yields

 

EBITDA increased by 7.8% to £5.09m (2010: £4.72m), with a lower EBITDA margin of 33.1% (2010: 34.5%) a result of the acquisition of City Trustees during the year.  In addition, a change in accounting policies imposed by a revised IFRS3 meant deal costs of £0.07m were recognised in the income statement.  Comparable deal costs have been capitalised in prior years.  To facilitate a like-for-like comparison with prior years, deal costs have been added back in calculating adjusted profit before tax. 

 

In January 2011, the UK Financial Services Compensation Scheme ("FSCS") announced an interim levy to remedy the cost of major investment failures in certain firms, primarily Keydata Investment Services Limited.  The Group incurred total interim levy costs of £0.13m.  The adverse impact of the FSCS interim levy has been offset by a release of provision for contingent consideration payable on the JB Group and CP Pensions acquisitions totalling £0.24m, following "stretch" performance targets not being met during the earn-out period. 

 

Our reputation for technical excellence has served us well and continues to provide a healthy flow of new business enquiries, which I expect to drive continued revenue growth, albeit with a short term contraction in margin as a result of our increasing investment in infrastructure and brand to ensure we can take full advantage of these opportunities.  In the longer term, I expect our additional investment in information systems and technology will provide scope for future margin improvement and the delivery of even better client service. 

 

Net finance revenue

 

Net finance revenue increased to £0.06m (2010: £0.04m).  Net finance revenues continue to be adversely impacted by the Bank of England base rate remaining at its historic low of 0.5%.  The Group has maintained a positive net cash position, although the payment of acquisition consideration resulted in lower average balances than in the prior year.  The increase in finance revenue during the year is a result of using our working capital to fund expansion in the property syndicate business. 

 

Taxation

 

The effective rate of taxation on profit on ordinary activities fell to 26.8% (2010: 29.6%), due to cuts in the UK corporation tax rate and the exercise of employee share options during the year.  The net deferred taxation liability carried forward at 31 May 2011 was £0.31m (2010: £0.12m).

 

Earnings per share and dividend

 

Basic earnings per share increased by 10.1% to 18.94p (2010: 17.20p) with diluted earnings per share increasing by 9.5% to 17.94p (2010: 16.38p).  A proposed increase of 13.8% in total dividend for the year to 4.95p per share (2010: 4.35p) demonstrates our desire to deliver value to shareholders and confidence in the outlook for the business. 

 

Cash flow

 

Net cash generated from operations was £3.79m (2010: £3.85m) with EBITDA of £5.09m (2010: £4.72m).  The Group conversion of EBITDA into operating cash flow fell to 74.4% (2010: 81.6%), primarily due to a £1.82m increase in trade and other receivables as a result of:

 

·     Fee-based revenues increasing as a proportion of total revenues, with sustained demand for advice from clients; and

·     The migration of ex-JB Group and CP Pensions clients to our fee-based billing model during the period leading to these clients being invoiced six months in arrears, rather than 12 months in advance

 

These factors increased the cash outflow from working capital to £1.38m (2010: £1.05m).  Headline trade debtor days increased to 78 days (2010: 71 days), with headline debtor days excluding amounts owed by property syndicates increasing to 69 days (2010: 65 days). 

 

Trade creditor days fell to 20 days (2010: 35 days) with amounts owed to suppliers at the year-end being lower than in the prior year, when improvements made to the layout of our offices at MW House led to a number of large supplier invoices for these works being outstanding at the year end. 

 

Capital expenditure for the year was £0.55m (2010: £0.43m), with the most significant costs being incurred on the fit-out of City Trustees new London offices, the replacement of company cars used by consultants and investment in new computer hardware and software.  Further investment in the Group's information systems and technology is planned over the next year, to enable us to launch our DFM service and enhance our clients' ability to review their affairs on-line. 

 

Bank facilities

 

The Group has renewed its borrowing facilities with Lloyds TSB Bank plc ("Lloyds TSB"), which consist of a £3.00m overdraft facility, with interest payable at the bank's base rate plus 1.0% on the first £0.25m and plus 1.375% on borrowings in excess of £0.25m.  The Lloyds TSB facility is repayable upon demand and renewable on 31 January 2012. 

 

At 31 May 2011 the Group had unused borrowing facilities of £3.00m (2010: £3.00m). 

 

Capital structure

 

The Group's capital structure is as follows:

 

 

2011

£

2010

£




Net funds

(4,609,653)

(5,781,664)

Shareholders' equity

22,102,050

18,981,286




Capital employed

17,492,397

13,199,622

 

The Group has remained negatively geared, with the gearing ratio increasing from (16.5)% to (5.6)% as a result of the acquisition of City Trustees during the period (see Note 1). 

 

Acquisitions

 

Clients acquired as part of the CP Pensions transaction have been fully integrated into our existing business, with CP Pensions' experienced team of administrators having relocated to our Leicester office. 

 

In August 2010 we acquired City Trustees from Lighthouse Group plc ("Lighthouse").  City Trustees is a great fit with our existing business.  During the period we have moved City Trustees into new offices and strengthened the senior management team.  We have recently put in place a revised fee structure and enhanced the client banking proposition.  Improved operating systems and procedures have eliminated historic billing inefficiencies and I expect the acquisition to be earnings enhancing in this new financial year. 

 

We have followed this with the acquisition of Kudos, extending both our employee benefit and wealth management propositions.  The transaction enables both parties to provide more services to existing clients and capture new business opportunities through our combined introducer networks.  It is an exciting step forward in the development of Mattioli Woods as a broader wealth management business. 

 

It is our ambition to continue expanding Mattioli Woods' operations both organically and by acquisition.

 

Resources, risks and relationships

 

Resources

 

The Group aims to safeguard the assets that give it competitive advantage, including its reputation for quality and proactive advice, its technical competency and its people.  

 

Our core values provide a framework for responsible and ethical business practices.  Structures for accountability from our administration teams through to the operational management team and the Group's Board are clearly defined.  The proper operation of the supporting processes and controls are regularly reviewed by the Audit Committee and take into account ethical considerations, including procedures for 'whistle-blowing'. 

 

Capacity

 

Our people continue to demonstrate an enormous amount of enthusiasm and commitment in responding to the challenges created by the recent turmoil in financial markets.  Maintaining capacity to take advantage of growing demand remains a key priority and we continue to invest in our graduate recruitment programme, with a total of 11 new graduates joining the Group (2010: 11).  Our total headcount at the end of the period was 206 (2010: 179). 

 

We continue to invest in the development of our bespoke pension administration system ("MWeb") and the DFM platform designed to enhance the services we offer clients. 

 

Principal risks and uncertainties

 

There are a number of potential risks which could hinder the successful implementation of our Group strategy and have a material impact on our long term performance.  These arise from internal or external events, acts or omissions which could potentially pose a threat to the Group.  We believe the most significant risk we face is potential damage to our reputation as a result of poor client service.  We address this through ongoing quality control testing and the provision of regular training for all our staff.

 

Pension regulations will continue to be reviewed.  Future changes may not produce an environment that is advantageous to the Group and any changes in regulation may be retrospective.  To address this risk, we are committed to ensuring that our views are expressed during consultation exercises and that we respond positively and rapidly to new regulations. 

 

We also recognise that a significant skills shortage would represent a risk to growth.  We are mitigating this risk through investment in our graduate recruitment programme and by providing incentives to motivate and retain our existing employees. 

 

A source of revenue is based on the value of cash balances held in clients' schemes.  These balances are not on the Group balance sheet.  A continued low interest rate environment creates a risk of a decline in earnings due to a decline in balances or interest turn.  However, we continue to develop our banking relationships to access competitive interest rates for our clients. 

 

The Group has an indirect exposure to security price risk on investments held by clients, with trailing (or funds based) investment commissions being based on the value of client assets under administration.  Periods of volatility in a particular asset class may see changes in how our investment revenues are derived.  However, a great strength of our business is that we can continue to derive income from investments in all asset classes, while ensuring our clients' investment strategies are appropriately aligned to the prevailing market conditions and suitable for their financial needs. 

 

Loans are advanced to new property syndicates to facilitate the purchase of commercial property.  In the event a syndicate fails to raise sufficient funds to complete a property purchase, the Group may either take up ownership of part of the property or lose some, or all, of the loan.  To mitigate this risk, loans are only approved by the Board under strict criteria, including independent professional advice confirming the market value of the underlying property. 

 

The table below outlines the current risk factors for the business identified by the Group. The risk factors mentioned below do not purport to be exhaustive as there may be additional risks that materialise over time that the Group has not yet identified or deemed to have a potentially material adverse effect on the business:

 

Industry risks

Risk type

Risk

Mitigating factors / Controls

Changes in investment markets

Volatility may adversely affect trading and/or the value of the Group's funds under administration and advice, from which we derive revenues. 

·      Focus on fee-based revenues over more volatile transactional or asset value-based revenues. 

·      Majority of clients' funds held within registered pension schemes, where less likely to withdraw funds and lose tax benefits. 

·      Bespoke client banking arrangements enable clients to shelter from market volatility. 

Changing markets and increased competition

The Group operates in a highly competitive environment with evolving characteristics and trends. 

·      Consolidating market position develops the Group's pricing power.

·      Full control over scalable and flexible MWeb administration platform.

·      Experienced management team with a strong track record. 

·      Loyal customer base and strong client retention.

·      Acquisition of City Trustees extends our proposition to IFA-introduced clients attracted by SIPP offering. 

Evolving technology

The Group's technology could become obsolete if we are unable to develop our systems to accommodate changing client needs, new products and the emergence of new industry standards.

·      Track record of successful development.

·      High awareness of the importance of technology at Board level.

·      Expanded systems development team through recruitment of new IT manager.

 

Industry risks (continued)

Risk type

Risk

Mitigating factors / Controls

Regulatory risk

The Group may be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation or enforcement of existing laws and regulations.

·      Strong compliance culture. 

·      Business model and culture embraces FSA principle of treating clients fairly. 

·      Financial strength provides comfort should capital resource requirements be increased.   

Changes in tax law

Changes in tax legislation could reduce the attractiveness of long-term savings via pensions schemes, particularly SSASs and SIPPs. 

·      The Government has a desire to encourage long-term savings to plan for an ageing population, which is currently under-provided for.  

·      The Board believes recent changes in pension legislation have been positive. 

Operational risks

Risk type

Risk

Mitigating factors / Controls

Damage to the Group's reputation

There is a risk of reputational damage as a result of employee misconduct, failure to manage inside information or conflicts of interest, fraud, improper practice, poor client service or advice.

·      Strong compliance culture.  

·      High level of internal controls including checks on new staff. 

·      Well trained staff. 

Errors, breakdown or security breaches in respect of the Group's software or information technology systems

Serious or prolonged breaches, errors or breakdowns in the Group's software or information technology systems could negatively impact customer confidence.  It could also breach contracts with customers and data protection laws, rendering us liable to disciplinary action by governmental and regulatory authorities, as well as to claims by our clients.

·      Ongoing review of data security. 

·      IT performance, scalability and security are deemed top priorities by the Board.

·      Experienced in-house team of IT professionals and established name suppliers. 

Business continuity

In addition to the failure of IT systems, there is a risk of disruption to the business as a result of power failure, fire, flood, acts of terrorism, re-location problems and the like.

·      Periodic review of Business Continuity Plan, considering best practice methodologies.

Key personnel risk

The loss of, or inability to recruit, key personnel could have a material adverse effect on the Group's business, results of operations or financial condition.

·      Succession planning is a key consideration throughout the Group.

·      Success of the Group should attract high calibre candidates.

·      Share-based schemes in operation to incentivise staff and encourage retention.

·      Graduate and other recruitment programmes in place to attract appropriate new staff. 

Litigation or claims made against the Group

Risk of liability related to litigation from clients or third parties and assurance that a claim or claims will be covered by insurance or, if covered, will not exceed the limits of available insurance coverage, or that any insurer will remain solvent and will meet its obligations to provide the Group with coverage. 

·      Appropriate levels of Professional Indemnity insurance cover regularly reviewed with the Group's advisers. 

·      Comprehensive internal review procedures, including compliance sign-off, for advice and marketing materials.  

Reliance on third parties

Any regulatory breach or service failure on the part of an outsourced service provider could expose the Group to the risk of regulatory sanctions and reputational damage.

·      Due diligence is part of the selection process for key suppliers.

·      Ongoing review of relationships and concentration of risk with key business partners. 

 

Operational risks (continued)

Risk type

Risk

Mitigating factors / Controls

Strategic risk

Risk that management will pursue inappropriate strategies or implement the Group's strategy ineffectively.

·      Experienced management team, with successful track record to date.

·      Management have demonstrated a thorough understanding of the market and monitor this through regular meetings with clients.

Financial risks

Risk type

Risk

Mitigating factors / Controls

Liquidity risk

The risk the Group is unable to meet liabilities as they become due because of an inability to liquidate assets or obtain adequate funding.

·      Cash generative business.

·      Group maintains a surplus above regulatory and working capital requirements.

·      Treasury management provides for the availability of liquid funds at short notice.

Bank default

In the current economic climate there is a risk that a bank could fall.

·      We only use banks with strong credit ratings where we believe the government would not allow them to fail. 

·      Deposits spread across multiple banks.

·      Regular review and challenge of treasury policy by management.

Interest rate risks

Risk of decline in earnings due to a decline in interest turn. 

Low interest rates make it harder to structure compelling capital-protected products for clients.

·      Good relationships with key banking partners. 

·      Access to competitive interest rates due to scale of our business. 

 

Relationships

 

The Group's performance and value to our shareholders are influenced by other stakeholders, principally our clients, suppliers and employees, Government and our strategic partners.  Our approach to all these parties is founded on the principle of open and honest dialogue based on a mutual understanding of needs and objectives. 

 

Relationships with our clients are managed on an individual basis through our account managers and consultants.  Employees have performance development reviews and employee forums provide a communication route between employees and management.  Mattioli Woods also participates in trade associations and industry groups, which give us access to client and supplier groups and decision-makers in Government and other regulatory bodies.  Mattioli Woods is a member of the Association of Member-directed Pension Schemes and the Quoted Companies Alliance. 

 

Conclusion

 

We operate in a dynamic market and have developed a great business platform, operated by a team of technically excellent and highly-motivated staff.  The development of our consultancy team will support organic growth around our core SSAS and SIPP proposition, and I expect the twin pressures of economic uncertainty and regulatory change to create new acquisition opportunities to support our growth objectives. 

 

I believe the acquisition of Kudos creates an exciting opportunity for the enlarged Group to gain a greater share of the UK's fast-growing wealth management sector.  Trading in the period since the end of the financial year has continued in line with management's expectations and I look forward to building further shareholder value going forward. 

 

 

Ian Mattioli

Chief Executive

29 August 2011

 

 

 

Consolidated statement of comprehensive income

For the year ended 31 May 2011

 


Note

 

 

2011

£

 

 

2010

£





Revenue

2

15,363,474

13,678,033





Employee benefits expense


(7,911,763)

(6,908,691)

Other administrative expenses


(2,208,133)

(1,865,220)

Share based payments


(142,454)

(161,957)

Amortisation


(381,256)

(324,110)

Depreciation


(219,705)

(169,397)

Loss on disposal of property, plant & equipment


(10,830)

(22,528)





Operating profit before financing


4,489,333

4,226,130





Finance revenue


59,304

43,659

Finance costs


(357)

(116)





Net finance revenue


58,947

43,543





Profit before tax


4,548,280

4,269,673

Income tax expense


(1,219,344)

(1,265,590)









Profit for the year


3,328,936

3,004,083

Other comprehensive income for the year, net of tax


-

-





Total comprehensive income for the year, net of tax


3,328,936

3,004,083





Attributable to:




Equity holders of the parent


3,328,936

3,004,083









Earnings per ordinary share:








Basic (pence)

3

18.94

17.20





Diluted (pence)

3

17.94

16.38





Proposed total dividend per share (pence)

4

4.95

4.35

 

The operating profit for each period arises from the Group's continuing operations.  The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements.  The profit for the financial year of the Company after taxation was £3,327,346 (2010: £3,004,083).

 

 

Statement of financial position                                                                    Registered number: 3140521

As at 31 May 2011


 



2011

2010





Group

Company

Group

Company

 


Note

£

£

£

£

 

Assets






 

Property, plant and equipment


934,708

854,419

733,463

733,463

 

Intangible assets


12,939,389

10,688,954

11,050,274

11,050,274

 

Deferred tax asset


210,788

210,788

127,069

127,069

 

Investments


15

2,483,215

15

41,684

 







 

Total non-current assets


14,084,900

14,237,376

11,910,821

11,952,490

 







 

Trade and other receivables


7,611,845

7,301,650

5,662,881

5,662,561

 

Financial assets


873,569

873,569

-

-

 

Cash and short-term deposits

5

4,612,689

4,062,244

5,790,292

5,789,143

 







 

Total current assets


13,098,103

12,237,463

11,453,173

11,451,704

 







 

Total assets


27,183,003

26,474,839

23,363,994

23,404,194

 

Equity 






 

Issued capital

6

175,840

175,840

173,473

173,473

 

Share premium

6

6,289,891

6,289,891

5,918,314

5,918,314

 

Other reserves

6

2,764,132

2,764,132

2,552,579

2,552,579

 

Retained earnings

6

12,872,187

12,871,673

10,336,920

10,337,996

 







 

Total equity attributable to equity holders of the parent


22,102,050

22,101,536

18,981,286

18,982,362

 







 

Non-current liabilities






 

Trade and other payables


120,000

120,000

120,000

120,000

 

Deferred tax liability


522,559

222,678

251,181

251,181

 

Provisions


325,721

300,721

329,598

329,598

 







 

Total non-current liabilities


968,280

643,399

700,779

700,779

 







 

Current liabilities






 

Trade and other payables


3,248,381

2,865,612

2,532,508

2,571,632

 

Income tax payable


584,766

584,766

689,088

689,088

 

Provisions


279,526

279,526

460,333

460,333

 







 

Total current liabilities


4,112,673

3,729,904

3,681,929

3,721,053

 







 

Total liabilities


5,080,953

4,373,303

4,382,708

4,421,832

 







 

Total equities and liabilities


27,183,003

26,474,839

23,363,994

23,404,194

 







 

 

The financial statements were approved by the board of directors and authorised for issue on 29 August 2011 and are signed on its behalf by:

 

Ian Mattioli

Nathan Imlach

Chief Executive

Finance Director

 

 

 

     Statements of changes in equity

     For the year ended 31 May 2011

 

 

Group

Issued capital
(Note 6)

£

Share premium (Note 6)

£

Equity-share based payments (Note 6)

£

Capital redemption reserve (Note 6)

£

Retained earnings (Note 6)

£

Total equity

£








As at 1 June 2009

172,855

5,769,149

456,341

2,000,000

8,060,163

16,458,508

Profit for the period

-

-

-

-

3,004,083

3,004,083








Total comprehensive income

-

-

-

-

3,004,083

3,004,083

Issue of share capital

618

149,165

-

-

-

149,783

Share-based payment transactions

-

-

89,097

-

-

89,097

Deferred tax asset taken to equity

-

-

7,141

-

-

7,141

Dividends

-

-

-

-

(727,326)

(727,326)








As at 31 May 2010

173,473

5,918,314

552,579

2,000,000

10,336,920

18,981,286

Profit for the period

-

-

-


3,328,936

3,328,936








Total comprehensive income

-

-

-

-

3,328,936

3,328,936

Issue of share capital

2,367

371,577

-

-

-

373,944

Share-based payment transactions

-

-

82,699

-

-

82,699

Current tax taken to equity

-

-

56,081

-

-

56,081

Deferred tax asset taken to equity

-

-

72,773

-

-

72,773

Dividends

-

-

-

-

(793,669)

(793,669)








As at 31 May 2011

175,840

6,289,891

764,132

2,000,000

12,872,187

22,102,050

 

 

      Statements of changes in equity

      For the year ended 31 May 2011

 

 

Company

Issued capital
(Note 6)

£

Share premium (Note 6)

£

Equity-share based payments (Note 6)

£

Capital redemption reserve (Note 6)

£

Retained earnings (Note 6)

£

Total equity

£








As at 1 June 2009

172,855

5,769,149

456,341

2,000,000

8,061,239

16,459,584

Profit for the period

-

-

-

-

3,004,083

3,004,083








Total comprehensive income

-

-

-

-

3,004,083

3,004,083

Issue of share capital

618

149,165

-

-

-

149,783

Share-based payment transactions

-

-

89,097

-

-

89,097

Deferred tax asset taken to equity

-

-

7,141

-

-

7,141

Dividends

-

-

-

-

(727,326)

(727,326)








As at 31 May 2010

173,473

5,918,314

552,579

2,000,000

10,337,996

18,982,362

Profit for the period

-

-

-


3,327,346

3,327,346








Total comprehensive income

-

-

-

-

3,327,346

3,327,346

Issue of share capital

2,367

371,577

-

-

-

373,944

Share-based payment transactions

-

-

82,699

-

-

82,699

Current tax taken to equity

-

-

56,081

-

-

56,081

Deferred tax asset taken to equity

-

-

72,773

-

-

72,773

Dividends

-

-

-

-

(793,669)

(793,669)








As at 31 May 2011

175,840

6,289,891

764,132

2,000,000

12,871,673

22,101,536

 

 

     Cash flow statements

     For the year ended 31 May 2011



Group

2011

Company

2011

Group

2010

Company

2010


Note

£

£

£

£

Operating activities






Profit for the period

Adjustments for:


3,328,936

3,327,346

3,004,083

3,004,083

Depreciation


219,705

206,079

169,397

169,397

Amortisation


381,256

336,293

324,110

324,110

Investment income


(59,304)

(59,166)

(43,659)

(43,659)

Interest expense


357

357

116

116

Loss on disposal of property, plant and equipment


10,830

10,830

22,528

22,528

Equity-settled share-based payments


142,454

142,454

161,957

161,957

Income tax expense

 


1,219,344

1,254,995

1,265,590

1,265,590

Cash flows from operating activities before changes in working capital and provisions


5,243,578

5,219,188

4,904,122

4,904,122

Increase in trade and other receivables


(1,828,596)

(1,639,090)

(504,411)

(504,460)

Increase/(decrease) in trade and other payables


452,117

399,572

(543,210)

(540,510)

Decrease in provisions


(80,910)

(80,910)

(7,463)

(7,463)

Cash generated from operations


3,786,189

3,898,760

3,849,038

3,851,689

Interest paid


(357)

(357)

(116)

(116)

Income taxes paid


(1,342,684)

(1,342,684)

(1,139,229)

(1,139,229)







Net cash flows from operating activities


2,443,148

2,555,719

2,709,693

2,712,344







Investing activities






Proceeds from sale of property, plant and equipment


17,057

17,057

34,800

34,800

Purchase of property, plant and equipment


(448,477)

(354,562)

(321,554)

(321,554)

Purchase of software


(96,750)

(95,625)

 (109,450)

 (109,450)

Acquisition of subsidiaries

1

(2,141,529)

(2,441,531)

 (105,500)

 (105,500)

Cash received on acquisition of subsidiaries

1

456,766

-

-

-

Acquisition of businesses

1

(108,481)

(108,481)

 (741,332)

(741,332)

New loans advanced to property syndicates


(3,325,588)

(3,325,588)

(614,784)

(614,784)

Loan repayments from property syndicates


2,452,019

2,452,019

735,176

735,176

Interest received


59,304

59,165

43,659

43,659







Net cash flows from investing activities


(3,135,679)

(3,797,546)

(1,078,985)

(1,078,985)







Financing activities






Proceeds from the issue of share capital


314,188

314,188

76,923

76,923

Repayment of borrowings


-

-

-

-

(Repayment of)/proceeds from directors' loans


(5,591)

(5,591)

1,808

1,808

Dividends paid

4

(793,669)

(793,669)

(727,326)

(727,326)







Net cash flows from financing activities


(485,072)

(485,072)

(648,595)

(648,595)

Net increase in cash and cash equivalents


(1,177,603)

(1,726,899)

982,113

984,764

Cash and cash equivalents at start period

5

5,790,292

5,789,143

4,808,179

4,804,379







Cash and cash equivalents at end period

5

4,612,689

4,062,244

5,790,292

5,789,143

 

 

 

Notes

 

1. Business combinations

 

Acquisition of City Trustees

 

On 9 August 2010 Mattioli Woods plc acquired the entire issued share capital of City Pensions Limited ("CPL") and City Trustees Limited ("CTL") (together "City Trustees") from Lighthouse Group plc ("Lighthouse") for a cash consideration of £1.85 million, net of intercompany balance repayments made by Lighthouse prior to completion.  CPL provides pension administration services, primarily to SSAS and SIPP schemes, and CTL acts as trustee to the schemes. 

 

The acquisition has been accounted for using the acquisition method.  The consolidated financial statements include the results of City Trustees for the ten month period from the acquisition date.  The fair value of the identifiable assets and liabilities of City Trustees as at the date of acquisition was:

 


Fair value recognised on acquisition (unaudited)

£

Previous carrying

value

(unaudited)

£




Client portfolio

1,198,324

-

Cash

456,766

456,766

Trade receivables

103,458

103,458

Other debtors and prepayments

16,909

16,909




Assets

1,775,457

577,133




Accruals

(89,462)

(65,515)

Other creditors and deferred income

(304,885)

(304,885)

Deferred tax liabilities

(335,531)

-




Liabilities

(729,878)

(370,400)




Total identifiable net assets at fair value

1,045,579


Goodwill arising on acquisition

1,095,950





Total acquisition cost

2,141,529





 

Cash outflow on acquisition

Unaudited

£





Cash paid

(2,141,529)


Acquisition costs

(71,920)


Net cash acquired with the subsidiary (included in cashflows from investing activities)

456,766





Net cash outflow

(1,756,683)


 

From the date of acquisition, City Trustees has contributed £10,877 to the profit of the Group, prior to amortisation of intangible assets arising on consolidation of £44,937.  If the combination had taken place at the beginning of the period, the profit for the Group would have been £3,263,295 and revenue from continuing operations would have been £15,502,881. 

 

The goodwill recognised above is attributed to the expected benefits from combining the assets and activities of City Trustees with those of the Group, to be derived from the expertise of City Trustees' employees and synergies arising through economies of scale.  These expected benefits are not capable of being separately identified as intangible assets.  None of the recognised goodwill is expected to be deductable for income tax purposes.  

 

Transaction costs of £71,920 incurred on the acquisition have been expensed and are included in administrative expenses in the income statement and operating cash flows in the statement of cash flows.  

 

Deferred and contingent consideration

 

The Group has entered into certain acquisition agreements that provide for deferred and contingent consideration to be paid.  While it is not possible to determine the exact amount of contingent consideration (as this will depend on revenues earned and client retention during the period), these agreements and the basis of calculation of the net present value of the contingent consideration are summarised below.

 

On 18 February 2008 the Group acquired the trade and assets of John Bradley Financial Services ("JBFS") and North Star SIPP LLP (together "the JB Group").  The total acquisition cost included deferred and contingent consideration of up to £1,340,000 payable in the three years following completion.  During the period the Group paid £100,000 of deferred consideration to the vendors of the JB Group, plus a further £45,653 of contingent consideration following the year-end.  The directors estimate the net present value of deferred and contingent consideration outstanding at 31 May 2011 was £nil (2010: £100,000) and £45,653 (2010: £185,511) respectively.

 

On 30 April 2010, the Group acquired the trade and assets of the pension administration and employee benefits businesses of Cooper Parry Wealth Strategies Limited ("Cooper Parry") (together "CP Pensions").  The total acquisition cost included deferred and contingent consideration of up to £600,000.  Following the year-end, the Group paid £92,193 of deferred consideration to the vendor of CP Pensions.  The directors estimate the net present value of deferred and contingent consideration outstanding at 31 May 2011 was £212,193 (2010: £300,000) and £150,000 (2010: £300,000) respectively.

 

2. Revenue

 

Revenue disclosed in the income statement is analysed as follows:

 

 

2011

£

 

2010

£




Rendering of services

10,458,300

8,338,525

Commission income

4,905,174

5,339,508





15,363,474

13,678,033







No revenue was derived from exchanges of goods or services (2010: £nil). 






 

3. Earnings per ordinary share

 

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.

 

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

 

The following reflects the income and share data used in the basic and diluted earnings per share computations:


2011

£

2010

£




Net profit and diluted net profit attributable to equity holders of the Company

3,298,135

3,004,083







Weighted average number of ordinary shares:

Thousands

Thousands




Issued ordinary shares at start period

17,347

17,286

Effect of shares issued during the year ended 31 May 2010

-

55

Effect of shares issued during the year ended 31 May 2011

232

124




Basic weighted average number of shares

17,579

17,465




Effect of options exercisable at the balance sheet date

979

875




Diluted weighted average number of shares

18,558

18,340

 

The Company has granted options under the Share Option Plan and Consultants' Share Option Plan to certain of its senior managers and directors to acquire (in aggregate) up to 7.75% of its issued share capital.  Under IAS 33 Earnings Per Share, contingently issuable ordinary shares are treated as outstanding and included in the calculation of diluted earnings per share if the conditions (the events triggering the vesting of the option) are satisfied.  At 31 May 2011 the conditions attached to 426,140 options granted under the Consultants' Share Option Plan are not satisfied.  If the conditions had been satisfied, diluted earnings per share would have been 17.58p per share (2010: 15.83p). 

 

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

 

4. Dividends paid and proposed

 


2011

£

2010

£




Declared and paid during the year:



Equity dividends on ordinary shares:



- Final dividend for 2010: 2.90p (2009: 2.75p)

503,864

476,053

- Interim dividend for 2011: 1.65p (2010: 1.45p)

289,805

251,273




Dividends paid

793,669

727,326

 

Proposed for approval by shareholders at the AGM:



Final dividend for 2011: 3.30p (2010: 2.90p)

596,168

503,864




 

5. Cash and short-term deposits

For the purpose of the cashflow statements, cash and cash equivalents comprise the following at 31 May:


 

2011

£

Group

2010

£

 

2011

£

Company

2010

£






Cash at banks and on hand

3,418,318

5,283,798

3,287,873

5,282,649

Short-term deposits

1,194,371

506,494

774,371

506,494







4,612,689

5,790,292

4,062,244

5,789,143

 

Cash at banks earns interest at floating rates based on daily bank deposit rates.  Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.  The fair value of cash and short-term deposits is £4,612,689 (2010: £5,790,292). 

 

At 31 May 2011, the Group had available £3,000,000 (2010: £3,000,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. 

 

6. Issued capital and reserves

Share capital

Ordinary shares

 of 1p

Ordinary shares

of 1p

£




Authorised






At 1 June 2009, 31 May 2010 and 31 May 2011

30,000,000

300,000




Issued and fully paid






At 1 June 2009

17,285,525

172,855

Shares issued under the SIP

61,787

618




At 31 May 2010

17,347,312

173,473

Exercise of employee share options

173,419

1,735

Shares issued under the SIP

63,226

632




At 31 May 2011

17,583,957

175,840

 

Rights, preferences and restrictions on shares

 

All ordinary shares carry equal rights and no privileges are attached to any shares in the Company.  All the shares are freely transferable, except as otherwise provided by law.  The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.  All shares rank equally with regard to the Company's residual assets.

 

Share option schemes and share incentive plan

 

The Company has two share option schemes under which options to subscribe for the Company's shares have been granted to certain executives and senior employees.

 

The Company also operates a share incentive plan.  Participants in the SIP are entitled to purchase up to a prescribed number of new ordinary shares in the Company in any year.  At the Directors' discretion, the Company may also award additional shares to participants in the SIP.  Ordinary shares issued under the SIP rank pari passu with existing issued ordinary shares of the Company.  Dividends paid on shares held within the SIP are used to buy new ordinary shares in the Company of 1p each.

 

Other reserves

 

 

 

Group

Equity-share based payments

£

Share premium account

£

Capital redemption reserve

£

 

Retained earnings

£






At 1 June 2009

456,341

5,769,149

2,000,000

8,060,163

Share based payments

89,097

-

-

-

Shares issued under the SIP

-

149,165

-

-

Deferred tax asset taken to equity

7,141

-

-

-

Profit for the financial year

-

-

-

3,004,083

Dividends

-

-

-

(727,326)






At 31 May 2010

552,579

5,918,314

2,000,000

10,336,920






Share based payments

82,699

-

-

-

Shares issued under the SIP

-

144,398

-

-

Exercise of share options

-

227,179

-

-

Current tax taken to equity

56,081

-

-

-

Deferred tax asset taken to equity

72,773

-

-

-

Profit for the financial year

-

-

-

3,328,936

Dividends

-

-

-

(793,669)






At 31 May 2011

764,132

6,289,891

2,000,000

12,872,187

 

 

 

 

 

Company

Equity-share based  payments

£

Share premium account

£

Capital redemption reserve

£

 

Retained earnings

£






At 1 June 2009

456,341

5,769,149

2,000,000

8,061,239

Share based payments

89,097

-

-

-

Shares issued under the SIP

-

149,165

-

-

Deferred tax asset taken to equity

7,141

-

-

-

Profit for the financial year

-

-

-

3,004,083

Dividends

-

-

-

(727,326)






At 31 May 2010

552,579

5,918,314

2,000,000

10,337,996






Share based payments

82,699

-

-

-

Shares issued under the SIP

-

144,398

-

-

Exercise of share options

-

227,179

-

-

Current tax taken to equity

56,081

-

-

-

Deferred tax asset taken to equity

72,773

-

-

-

Profit for the financial year

-

-

-

3,327,346

Dividends

-

-

-

(793,669)






At 31 May 2011

764,132

6,289,891

2,000,000

12,871,673

 

7. Events after the balance sheet date

 

Acquisition of TCF and Kudos

 

On 26 August 2011, Mattioli Woods plc acquired the entire share capital of TCF Global Independent Financial Services Limited ("TCF") and its subsidiary Kudos Independent Financial Services Limited ("Kudos") from its shareholders for a total consideration of up to £8.69 million, to be satisfied partly in cash and partly through the issue of 462,572 new ordinary shares of 1p each in Mattioli Woods.  The cash consideration is payable in part on completion and in part over the period of three years following completion, subject to certain earnings and revenue targets being met. 

 

TCF is the holding company of Kudos, an employee benefits and wealth management business founded in 1991.  Based in Aberdeen, Kudos employs 45 staff with offices in Glasgow and London, providing advice to both high net worth individuals and companies on all aspects of financial planning. 

 

In the year ended 30 September 2010, Kudos generated a profit before taxation of £534,817 on revenues of £4,257,891.  At 30 September 2010 TCF's net assets (equivalent to Kudos' net assets at the same date) were £1,278,061. 

 

The total consideration consists of an initial consideration of £3.94 million, comprising £2.75 million in cash and 462,572 ordinary shares in Mattioli Woods, plus deferred consideration of up to £4.75 million payable in cash in the three years following completion if certain financial targets are met based on growth in recurring revenues and earnings before interest, tax, depreciation and amortisation generated during the three years following completion. 

 

As a result of the date of acquisition, the directors are unable to provide the disclosure requirements of IFRS3 relating to acquisitions after the end of the reporting period but before the financial statements are authorised for issue. 

 

Taxation

 

In July 2011 the UK government enacted tax changes which will have a significant effect on the Group's future tax position.  The rate of UK corporation tax will reduce from 27% to 26% from 1 April 2012, with further annual reductions of 1% annually leading to a rate of 24% from 1 April 2014. 

 

These rate changes will affect the amount of future cash tax payments to be made by the Group and will also reduce the size of the Group's balance sheet deferred tax assets and liabilities. 

 

There are also changes to the UK capital allowances regime, which take effect from 1 April 2012. 

 

8. Distribution of the annual report and accounts to members

 

The announcement set out above does not constitute a full financial statement of the Group's affairs for the year ended 31 May 2010 or 2011.  The Group's auditors have reported on the full accounts of each year and have accompanied them with an unqualified report.  The accounts have yet to be delivered to the Registrar of Companies.

 

The annual report and accounts will be posted to shareholders in due course, and will be available on our web site (www.mattioli-woods.com) and for inspection by the public at the Group's head office address: MW House, 1 Penman Way, Grove Park, Enderby, Leicester LE19 1SY during normal business hours on any weekday.  Further copies will be available on request.

 

The Company's annual general meeting will take place on 13 October 2011 at the Group's head office.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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